EDITORIAL: In a recent webinar on creating a wholesale electricity market, organized by National Electric Power Regulatory Authority (Nepra), the predominant view was that a wholesale market with a weak transmission and distribution system is not possible; and that the Competitive Trading Bilateral Contract Market (CTBCM) does not address one of the most intransigent bottlenecks in the sector; notably, the circular debt which today has reached a highly disturbing level of 2.3 trillion rupees.
First off, key stakeholders, including the distribution and generation companies, were not visible during the webinar, leading many to suspect that either they were not invited or that they considered the meeting as an exercise in futility - companies whose input would have been definitive in concluding that a wholesale market is not possible without strengthening weak distribution and transmission network. Had these companies confirmed this rather bizarre conclusion then the obvious question that the participants would have asked them is: what are the mitigating measures that can be taken to ensure that this lacuna is appropriately dealt with. Needless to add, without their critical participation it appears that the opposition to the CTBCM may be sourced to a concern that a wholesale electricity market would make the role of many redundant. Moreover, Chairman Nepra did state during the webinar that CTBCM would be a game changer for the power industry and that the regulator had approved a detailed design and implementation plan designed to usher in a competitive environment that would benefit the country.
Secondly, it was argued that capacity surplus was not compatible with CTBCM. The PML-N government implemented several projects under the China Pakistan Economic Corridor (CPEC) that raised capacity to well above demand without strengthening the transmission and distribution network. In this context it is relevant to note that the government has already signed a Memoranda of Understanding (MoUs) with most of the Independent Power Producers (IPPs), excepting those established under the CPEC, though the mode and timing of the payment remains to be agreed that would convert them into legally binding contracts. Reports indicate that similar agreements have been agreed, in principle, with the Chinese and are pending announcement during an expected visit of President Xi to Islamabad. In addition, the issue of capacity payments may be resolved through export of electricity to Afghanistan and one would hope that as economic activity picks up in the country the anticipated rise in demand would absorb the excess capacity.
Thirdly, a wholesale market creates the possibility of an electricity futures market that would attract private sector investment – the likelihood significant as the power sector has extremely high rates of return though in recent years the commercial banking sector is reluctant to invest because of it’s over exposure to the power sector and the sector’s sustained poor performance reflected by the rising circular debt – money that could well be used to resolve the higher than the international average transmission and distribution losses.
A concern was raised by K-Electric facing a rising clamour that there must be multiple suppliers subsequent to massive load-shedding for long hours this summer past notably that cross subsidization for the poor would not be possible in the case of multiple suppliers. This argument would fall by the wayside if initially at least the government continues budgetary support for inter-disco tariff differential which for Wapda/Pepco amounted to 124 billion rupees in the current year (against 201 billion rupees in the revised estimates of last year) and 25.5 billion rupees to K-Electric in the current year (against 59.5 billion rupees in the revised estimates of last year).
Those who opposed the creation of a wholesale electricity market drew parallels from issues in California and Turkey and ignored was the fact that no problem is un-resolvable and its resolution may require out of the box thinking. Nepra consultant Beatirz Arizou stated during the webinar that a perfect market design that suits all does not exist though common economic and efficiency principles do, adding that while different experience and designs are in place yet they must be adapted to the needs and conditionalities of the system and sector where the market has been implemented.
It is, therefore, important to note that the power sector as stated by the Prime Minister is his government’s Achilles heel and requires major efficiency improvement as well as structural change to begin to contribute to this country’s growth rather than to impede it. And a wholesale electricity market does provide hope for the resolution of multiple sectoral problems that administration after administration has failed to solve.
Copyright Business Recorder, 2020
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